Northern Rock crisis highlights advantages of social lending, says Zopa

19 September 2007
UK consumers have illustrated their lack of trust in the British banking system and should try something different – like the transparency and competitive interest rates that you get with peer-to-peer lending, says Zopa.

Zopa is the world’s first marketplace where people can go to lend or borrow money from or to each other, cutting out the need for banks, offering more clarity and often better interest rates than more traditional methods of lending.

It offers the transparency which Zopa says the lending and borrowing of the opaque UK market lacks, allowing lenders to see where there money’s going, at what rate and for what purpose, unlike investing it in in potentially unethical sources through a bank.

Borrowers are also in the know with a peer-to-peer deal, as they know where the money’s coming from and exactly what interest rate they have to pay. Northern Rock’s customers are currently on a mass exodus, sparked by one of the five largest mortgage providers having to borrow emergency funds from the Bank of England last week.

Social lending networks also narrow the gap between interest rates and returns, unlike banks which often exercise a large discrepancy between the interest rate they charge borrowers and the ones that they bestow upon savers, meaning large profit margins.

Zopa, for example, levies one single charge upon borrowers and lenders, and interest rates are set out clearly by the lenders themselves; it is up to the borrowers whether or not they choose to take up the loan. Credit checks are also carried out, and creditworthiness is assured before borrowing is allowed.

Giles Andrews, Managing Director of Zopa UK said, “While for many the biggest appeal of Social Lending is the chance to pay a lower rate of interest on their borrowing, or get a higher return than from their savings with a bank by lending, the other benefits we offer seem especially relevant right now.

“Our members can see exactly what is going on with their money – who it is coming from or where it is going to, and at exactly what rate. They can also see exactly what they are paying and how much Zopa is making. This kind of transparency and clarity is exactly what the banking industry must learn to offer if it seriously hopes to reduce the levels of suspicion and nervousness that the events of the last week have so clearly demonstrated their customers feel about them.”

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